Buyers Pounce on Public Holiday Under-Supply

Auction Results for week ending March 12, 2017.

Demand in Sydney remains off the charts, and Victoria, South Australia, and Canberra all had Monday public holidays, which led to four capital city clearance rates in the 80s this week.

Due to the long weekends, only 1,402 homes were taken to auction across the combined capital cities, down significantly from the 2,907 auctions held last week and lower than one year ago when volume was 1,488. The preliminary clearance rate across the country rose from 74.6 percent last week to 80.8 percent this week.

The City Stats

There was no public holiday in New South Wales, which made Sydney the busiest capital city auction market this week. Nonetheless, supply was still lower than previous weeks, as 83.1 percent of 766 total auctions were successful. Last week, about 100 fewer auctions were held and the clearance rate was 76.0 percent. Last year, demand was much weaker, as only 71.2 percent of 680 auctions found buyers.

Due to Labour Day in Melbourne, the city was host to only 355 auctions. Buyers proved too keen to take the weekend off as the preliminary clearance rate rose significantly to 84.3 percent, up from 78.4 percent the previous week. Over the Labour Day weekend last year, Melbourne’s clearance rate was only 68.6 percent across 420 auctions.

The Adelaide Cup was on this weekend in the South Australian capital, which held off quite a few sellers. A whopping 87.0 percent of only 82 auctions were successful. Last week, 147 homes were auctioned off with a success rate of 68.6 percent.

Canberra deserves a mention this week as well, posting a preliminary clearance rate of 83.3 percent. It’s a similar story there, where because of Canberra Day, only 42 homes were taken to auction.

The Graph

The Preliminary Numbers

The Analysis

There’s only so many ways to keep telling the same story. Record low interest rates and strong demand in Melbourne and Sydney continue to prop up auction clearance rates. If anything happens to restrict supply, competition heats up even more, adding to pressure for prices to rise.

Here’s a chart showing the four-week average combined capital city clearance rate now clearly trending up in blue:

An increase in auction volume next week will test demand, but with the RBA keeping rates on hold last week, there’s little doubt that demand will continue to support clearance rates, at least in the upper-70 percent range.

What’s the impact on price growth? According to CoreLogic, in February the median dwelling price in Sydney rose by 2.6 percent and in Melbourne 1.5 percent. The annual increase stands at 18.4 percent and 13.1 percent respectively. Looking back to January 2009, that amounts to a rise in the median house price of 104.5 percent in Sydney and 87.7 percent in Melbourne.

What It Means For Investors

Anyone who doubts the role that low interest rates are playing in fuelling investor demand need only look to January’s housing finance figures that were just released by the ABS on Friday. Lending to investors surged 4.2 percent over the month, bringing the annual rise to 27.5 percent. That was the largest monthly increase since May of 2015.

Loans to owner-occupiers remained flat and the piece of the lending pie scooped up by first-time buyers fell to 13.4 percent, which is about as low as it’s been in 13 years. This backs up what we already knew, the Australian Dream is becoming further and further out of reach for many.

With the RBA battling record low wage growth, it will have a tough time raising rates, which means investors should keep a close eye on tougher macroprudential measures from APRA. ANZ Research suggests changes may come through a lowering in the threshold for growth in total lending to investors from 10 percent to perhaps 7 percent. If we go the way of Auckland, that means that Sydney and Melbourne investors may need to prepare to pony up a minimum of 30 or even 40 percent as a deposit.

If you’re speculating on more capital growth, just be aware that you may find yourself across the aisle from our policy-makers.

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The results listed here are based on preliminary reporting by CoreLogic. The final results will be reported in next week’s post.

For the historical data of weekly auction clearance rates, click here.

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.